A lower value of the dollar has continued to improve the competitiveness of U.S. exports. That undoubtedly accentuated the decline in October’s trade deficit to $32.9B. The declined followed a September deficit of $35.7, which was revised even lower than initial estimates given last month.
In more good news, exports jumped. It was their sixth month straight month of increase. The latest figure was quite a bit lower than consensus expectations for a deficit of $37.0B.
But perhaps the best news in Thursday’s report is that exports are benefiting from healthy demand abroad. Exports were led by a $1.2 billion up tick in capital goods in October followed by gains in demand for consumer goods as well as automobiles.
Today’s international trade report continues the string of evidence pointing to a strong Q4 GDP.
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I have been observing and analyzing American trade policy since the 1980s and there have been periods when the trade deficit goes up and it goes down. However, there is no reason to believe that the amount will go down significantly because most of the overall deficit involves countries such as China, Japan, South Korea, and Saudi Arabia. Much of our imports consists of items that cannot be produced as cheaply in the United States, raw materials that this country needs, and energy products such as oil. I do not foresee a time when these countries will ever import products from the United States at a dollar amount comparable to their exports to this country, nor do I see other countries importing much more, as well. The trade deficit may have improved, but I think it would be a mistake to assume this as part of a general trend, downward.
For a different “take” and more detailed analysis of the October trade deficit report, see http://petemurphy.wordpress.com/2009/12/10/october-trade-headlines-look-good-details-not-so-much/
The biggest factor in the drop in October was an unusually large drop in oil imports, likely to be reversed in the future. As far as the rest of the report, the rise in exports was offset by a rise in imports.
Pete Murphy
Author, “Five Short Blasts”